- This year continued to be an extraordinary year of unusual trends and records breaking.
- Next year is set for more demand, driven by multiple factors.
- 2024 will also see movement in the rental market.
Australia’s housing market has endured yet another unusual year, with three themes characterising the year, according to the Domain’s 2023 end of year wrap and 2024 outlook.
It was the year of the mortgage cliff, low consumer confidence, and an early start to the spring selling season.
“Australia’s 2023 property market will be defined as the year price growth defied high-interest rates and a new cycle began,” said Domain chief of research and economics and report author, Dr Nicola Powell.
“It was a surprise, given that it was largely expected to be the year that rapid rate hikes continued to hit housing demand and would impact price growth negatively.
“Over the past 18 months, mortgage holders have been slugged with 13 rate hikes, moving the cash rate from 0.1% to 4.35%, with five increases in 2023. It has been a win for savings rates, but the impact on borrowing capacity and mortgage affordability has cut deeply,” said Dr Powell.
A 2023 recap
This year was when the widely covered mortgage cliff arrived. The mortgage cliff, or fixed rate cliff, refers to when many Australians signed up to home loans during Covid when the official cash rate was 0.1%. As these loans expired, the latest rates were significantly higher, with the official cash rate around 4.10% when many transitioned to variable rates halfway through this year.
In August, CoreLogic’s Eliza Owen observed an uptick in arrears from the September quarter 2022 low of 1%, however, arrears remained below the pre-pandemic level of 1.6%.
Domain’s report also noted a rise, but mortgage arrears remain near ‘historic lows’.
In some good news, the report found that due to increasing home prices, losses arising from an urgent sale or default were likely reduced. The proportion of distressed listings on Domain declined throughout the year.
Unusually, consumer confidence remained pessimistic during the year while the market experienced a recovery. A recovery is normally accompanied by improving sentiment.
According to the report, such an outcome is indicative of long-term confidence in the housing market as a stable investment.
The second half of the year also saw an unexpected uplift in listings during August; this was mostly confined to Sydney and Melbourne. Concurrently, prices continued to rise, albeit at a slower rate.
Five property predictions for 2024
According to Domain, the top five predictions are:
- Cash rate cut to drive demand,
- Population growth will also add to demand,
- A focus on affordability,
- YIMBYs will replace NIMBYs,
- Rental markets reach a tipping point.
1. and 2. Two drivers of demand: Cash rate cuts, and population growth
According to the report, a reduction in the official cash rate or other stimulus measures may add demand to the property market, leading to more price rises.
Alternatively, should mortgage serviceability buffers ease, demand will also increase.
Strong population growth will remain part of the property market, with Dr Powell writing in the report:
“We believe that net overseas migration has peaked and is forecast to return to normal patterns by 2025. The recent temporary record strength in migration will continue influencing our housing markets.
“Domain analysis found population growth has a cumulative longer-term effect on house prices and, therefore, will continue to play a driving role in our housing markets into 2024 and beyond.”
3. A focus on affordability
The report noted that buyers will begin to explore sister suburbs and locations that were initially overlooked.
Sister suburbs are locations neighbouring the areas you may wish to buy in, providing an opportunity to buy at a lower price point while still having the opportunity to enjoy the amenity of the desired suburb.
It was also noted the ‘flight to affordability’ for first home buyers will be bolstered by the recently announced ‘Help to Buy‘.
4. A change in attitudes
Another expectation for 2024, according to the report, is progressive housing and planning reforms across Australia.
The report noted that:
“We will see a visionary attitude towards housing development and affordability that takes a radical approach to enable urban densification in areas where people want to live.”
One potential change could include who holds sway over planning decisions, said the report.
5. Rental markets to reach a tipping point
Australia’s rental market is set for several changes across 2024. While this year has seen continual rental price increases, next year will eventually see growth slow, according to the report.
It also predicts more renters will choose to stay in share housing and first home buyer incentives will help transition some to being owners or fast-track others to a more affordable purchase.
